When purchasing goods from an overseas supplier, one of the most important decisions is choosing the right Incoterms® rule.
Two terms commonly seen in international sea freight are FOB (Free On Board) and CIF (Cost, Insurance and Freight).
At first glance, the difference may seem simple:
FOB: The buyer generally arranges the main international freight.
CIF: The seller contracts and pays for the main freight and insurance to the agreed destination port.
However, there is one important point that importers should understand:
Under CIF, the seller paying for freight to the destination does not mean the seller carries the transportation risk all the way to the destination.
Under Incoterms® 2020, both FOB and CIF generally transfer risk from the seller to the buyer when the goods are on board the vessel at the port of shipment, subject to the agreed contract of sale.
Understanding this difference can help importers evaluate supplier quotations, insurance arrangements, logistics responsibilities and overall shipment costs more effectively.
1. What Are Incoterms®?
Incoterms® are internationally recognized trade rules published by the International Chamber of Commerce (ICC).
They help buyers and sellers define responsibilities relating to matters such as:
- Delivery of goods
- Allocation of transportation costs
- Transfer of risk
- Carriage arrangements
- Insurance obligations under certain rules
- Export and import formalities
Incoterms® 2020 is the current version and has been in effect since 1 January 2020.
An important point is that Incoterms® do not simply determine who pays the freight.
They address several different aspects of an international transaction, particularly obligations, risk and costs.
This distinction becomes especially important when comparing FOB and CIF.
2. What Is FOB — Free On Board?
FOB (Free On Board) is an Incoterms® rule intended for transportation by sea or inland waterway.
Under FOB, the seller delivers the goods by placing them on board the vessel nominated by the buyer at the agreed port of shipment.
Once the goods have been delivered on board, the risk of loss or damage transfers from the seller to the buyer under the FOB rule.
In practical terms
The seller generally handles responsibilities up to the agreed FOB delivery point, including export clearance.
The buyer generally arranges the main international carriage from the port of shipment and handles the import side at destination.
Example: FOB Shanghai
Suppose a Thai company purchases goods from a supplier in China under:
FOB Shanghai, Incoterms® 2020
The Chinese supplier delivers the goods on board the nominated vessel in Shanghai.
The Thai buyer can appoint its own freight forwarder to arrange international transportation from China to Thailand.
Once the goods are on board the vessel at the agreed port of shipment, risk transfers to the buyer according to the FOB rule, subject to the terms agreed in the contract of sale.
3. What Is CIF — Cost, Insurance and Freight?
CIF (Cost, Insurance and Freight) is also an Incoterms® rule intended for transportation by sea or inland waterway.
Under CIF, the seller contracts and pays for carriage to the agreed destination port and also arranges the insurance required under the CIF rule.
However, there is an important distinction:
The destination to which the seller pays the freight and the point where risk transfers are not the same thing.
For example, consider:
CIF Laem Chabang, Incoterms® 2020
The seller may arrange and pay for the main carriage to Laem Chabang Port and obtain the required cargo insurance.
However, this does not mean that the seller necessarily carries the risk until the goods arrive at Laem Chabang.
Under the CIF rule, risk generally transfers to the buyer when the goods have been delivered on board the vessel at the port of shipment.
Another important consideration is insurance.
CIF requires the seller to arrange insurance according to the requirements of the rule. However, importers should understand the scope and level of insurance actually provided rather than assuming that CIF automatically provides comprehensive coverage for every possible risk.
4. FOB vs CIF — Quick Comparison
| Issue | FOB | CIF |
|---|---|---|
| Main international freight | Buyer generally arranges | Seller contracts and pays |
| Seller's cargo insurance obligation | No obligation under FOB to arrange insurance | Seller arranges the cover required under CIF |
| Risk transfer | Goods on board at shipment port | Goods on board at shipment port |
| Main freight arrangement | Generally controlled by buyer | Generally arranged by seller |
| Import clearance | Buyer | Buyer |
| Intended transport mode | Sea / inland waterway | Sea / inland waterway |
The key point
CIF changes who contracts and pays for the main carriage and insurance obligations, but it does not move the risk-transfer point to the destination port.
This is one of the most important distinctions for importers to understand.
5. Example: China to Thailand
Imagine a Thai importer purchasing goods from a supplier in Shanghai, China, with the shipment arriving through Laem Chabang Port.
The supplier offers two alternatives:
Option A: FOB Shanghai, Incoterms® 2020
or
Option B: CIF Laem Chabang, Incoterms® 2020
Under FOB Shanghai
The supplier delivers the cargo on board the vessel in Shanghai according to the agreed FOB terms.
The Thai importer can arrange the ocean freight through its own freight forwarder.
Depending on the arrangement, this may provide the importer with greater visibility or control over areas such as:
- Carrier selection
- Sailing schedule
- Freight quotation
- Transit arrangements
- Destination agent
- Certain logistics conditions
Under CIF Laem Chabang
The supplier contracts and pays for the main carriage to Laem Chabang and arranges the insurance required under CIF.
This can be commercially convenient because the seller handles the main freight arrangement.
However, the Thai importer should still understand the costs and responsibilities that apply after arrival.
A CIF price should not automatically be interpreted as an all-inclusive delivered price to the buyer's warehouse.
There may still be destination-side charges, customs formalities, import taxes, inland transportation and other costs depending on the shipment and commercial arrangement.
6. What Costs Should Thai Importers Check?
When comparing FOB and CIF offers, looking only at the supplier's product price or ocean freight can provide an incomplete picture.
Depending on the shipment and service arrangement, logistics-related costs may include:
- Ocean freight
- Origin charges
- Destination local charges
- Terminal-related charges
- Documentation charges
- Customs clearance service charges
- Inland transportation
- Storage, where applicable
- Demurrage or detention, where applicable
These costs may vary according to the carrier, route, port, shipment type and agreed service arrangement.
Note: Import duty, VAT and regulatory requirements are separate from logistics charges and depend on factors including the product, HS Code, origin, applicable trade agreements and regulatory requirements.
This is why importers should consider the total logistics arrangement rather than comparing only one freight number.
The cheapest freight rate and the lowest total shipment cost are not always the same thing.
7. Is FOB Always Better for Thai Importers?
No. There is no single Incoterms® rule that is automatically the best choice for every shipment.
FOB may be attractive when an importer wants greater control over the main international freight arrangement.
CIF may be commercially convenient when the buyer and seller prefer the seller to arrange the main carriage and insurance.
The appropriate choice can depend on factors such as:
- Relationship with the supplier
- Type of commodity
- Transportation arrangement
- Freight market conditions
- Insurance requirements
- Destination costs
- Payment terms
- Operational capability
- Desired level of control over transportation
Importers should therefore evaluate the complete commercial and logistics arrangement before selecting an Incoterms® rule.
8. An Important Point About Containerized Cargo
There is another technical consideration that importers should understand.
Although FOB is widely used commercially for container shipments, the ICC distinguishes situations based on how and where the goods are actually delivered.
FOB is intended for situations where the seller delivers the goods by placing them on board the vessel.
However, containerized cargo is often handed over to the carrier or terminal before it is loaded onto the vessel.
In situations where the goods are delivered to the carrier before being placed on board, FCA (Free Carrier) may be more appropriate depending on the actual delivery arrangement.
Why does this matter?
Consider a typical container shipment.
The supplier may deliver a loaded container to a container terminal several days before the vessel departs.
At that point, the container has already been handed over to the carrier or terminal, but it has not yet been placed on board the vessel.
This means the physical delivery process may not perfectly match the delivery mechanism contemplated by FOB.
Importers and exporters should therefore review:
- Where the goods are actually handed over
- Who receives the goods
- When responsibility transfers
- The transportation method
- The commercial agreement
rather than automatically choosing FOB simply because the cargo is transported by sea.
9. Checklist Before Agreeing to FOB or CIF
Before confirming an international purchase order, consider the following:
✓ What exact Incoterms® rule is being used?
Specify the named place or port and the applicable version.
For example: FOB Shanghai, Incoterms® 2020
is clearer than simply writing: FOB
✓ Where does risk transfer?
Understand the agreed delivery point and when risk transfers from seller to buyer.
✓ Who arranges the international freight?
Confirm whether the buyer or seller will control the main transportation booking.
✓ What insurance is provided?
Particularly under CIF, review the insurance arrangement rather than assuming all risks are covered.
✓ What destination charges may apply?
Understand the potential destination-side charges before the shipment departs where possible.
✓ What is included in the freight quotation?
Review the quotation carefully, including:
- Freight
- Local charges
- Free time
- Documentation
- Customs clearance
- Inland transportation
- Other applicable charges
✓ Are Thailand's import requirements ready?
Depending on the product, additional licences, certificates, registrations or approvals may be required before importation.
Checking these requirements before the cargo departs can help reduce avoidable delays and unexpected costs.
10. How Provila Supports Importers in Thailand
Choosing between FOB and CIF is only one part of planning an international shipment.
Provila Holding Co., Ltd. supports businesses importing into and exporting from Thailand with logistics services including:
- International Sea Freight
- Air Freight
- Customs Clearance
- Import & Export Documentation Coordination
- Inland Transportation
- Cross-Border Transportation
- Coordination relating to applicable import requirements
Our team works with customers to understand the shipment arrangement and identify transportation, documentation and customs-related considerations that should be reviewed before booking.
Whether your supplier is offering FOB, CIF or another Incoterms® rule, understanding the complete logistics arrangement before the cargo moves can help your business plan more effectively.
Planning an Import into Thailand?
Unsure whether FOB or CIF is suitable for your shipment?
Share the basic shipment details with the Provila team and we will be happy to discuss the logistics arrangement.
PROVILA HOLDING CO., LTD.
Your Logistics Partner.